Belief alone is not enough

Published on
2 min read

In disqualifying a director for seven years, the court distinguished between a belief held by the director that the debts could be repaid and a reasonable prospect that the funds would be secured to achieve repayment.

The Company (Arise Networked Ltd) was incorporated in October 2012. The Company was to be part of a network of media companies, based in the UK and the USA, that focused on African news and events.  The Company was funded by monies transferred from Nigeria; however, in September 2014, the Nigerian Government introduced restrictions on the transfer of money out of Nigeria.

The Official Receiver (OR) considered that from December 2014, the director should have been able to assess whether the Company could continue to incur further liabilities in circumstances where there was no indication as to when the currency restrictions would be lifted.

The director claimed that he believed that there was "a fair and reasonable expectation that the company" could trade through the difficulties. Whilst the court found no evidence that the director was dishonest, given the uncertainty in relation to when funds would be received from Nigeria, the Company continued to trade without reasonable prospect of being able to repay the liabilities it incurred.

The director clearly owed a duty to the creditors of the company throughout the entire existence of the Company. It was trading to the detriment of creditors; agreements made with creditors effectively extending the payment periods only increased the liabilities of the Company. The increase in the liabilities during the period from December 2014 until the liquidation (May 2016) was in excess of £2 million in relation to the unconnected creditors and over £5 million for the connected creditors. In such circumstances, it was in the public interest to disqualify the director.

This case was distinguishable from cases where a company trades on expecting that its revenues during the trading period may provide a better outcome to creditors; in this case there were never any trading revenues.

Re Arise Networks Ltd (In Liquidation) (also known as Official Receiver v Obaigbena), [2021] EWHC 852 (Ch)

Mills & Reeve Sites navigation
A tabbed collection of Mills & Reeve sites.
Sites
My Mills & Reeve navigation
Subscribe to, or manage your My Mills & Reeve account.
My M&R

Visitors

Register for My M&R to stay up-to-date with legal news and events, create brochures and bookmark pages.

Existing clients

Log in to your client extranet for free matter information, know-how and documents.

Staff

Mills & Reeve system for employees.